Archive for July 9th, 2009

NEW YORK: Homeless families in suburban and rural areas jumped by 56% in 2008, according to a government report released Thursday.Plus, the number of homeless individuals in suburban and rural areas spiked by nearly 34%, according to the U.S. Department of Housing and Urban Development’s “2008 Annual Homeless Assessment Report to Congress.” The report found that despite these jumps, homelessness nationwide remained relatively stable. But the spike in suburban and rural communities, areas that have been especially hard hit by the housing meltdown, “begs many questions about how today’s housing crisis and job losses are playing out in our shelters and on our streets,” said HUD Secretary Shaun Donovan in a written statement. Nationally, the number of families in need of a place to live increased by 9%, the report said.Meanwhile, nationwide, the number of individuals without shelter dipped 1% in 2008 compared to 2007. On a single night in January 2008, about 664,000 people – counting those in shelter and those unsheltered – didn’t have a home. That was 7,500 fewer than the previous year. Even with homelessness remaining relatively steady nationwide, the report noted that more people were coming to homeless shelters from stable living arrangements, or places they had lived for one year or more. Between October 1, 2007 and September 30, 2008, about 1.6 million homeless people turned to facilitated housing, after using up hospitality of family or friends.On Thursday, Donovan awarded 1.2 billion to over 400 communities across the nation to get families that fell into homelessness back into homes quickly – or prevent them from becoming homeless in the first place. “The Administration’s aggressive approach to economic recovery recognizes that during these difficult times, families in certain areas of the country are at extreme risk of falling into homelessness,” said Donovan. The funds are part of the American Recovery and Reinvestment Act of 2009. A total of 1.5 billion has been provided for short and medium-term rental assistance – between 3 and 18 months worth – to individuals and families in the Homeless Prevention and Rapid Re-housing Program (HPRP). In addition, the funds will go toward utility deposits, utility payments, moving cost assistance, and hotel vouchers. While only 1.2 billion of the allocated 1.5 billion have been awarded, the plans for the remainder of the funds will be released in the next weeks. “This is money that will not only spare families the hardships of homelessness, but will save taxpayers significant money in the long run,” said Donovan in a written statement. “Often times, a little bit of financial assistance can make all the difference between a stable home and being forced to live in a shelter or on the streets.”In order to keep a closer watch on homelessness in the wake of surging foreclosure rates and record-high unemployment, HUD will increase its frequency of homelessness reports. It will release a Quarterly Homeless Pulse Report starting with the first quarter of 2009.Even as the 2008 homelessness report showed an increase in homelessness in the suburbs, homelessness remained concentrated in urban areas. On a single night in January, 20% of homeless people were located in Los Angeles, New York, and Detroit.

Source:CNN

NEW YORK: Californians will have fewer places to redeem IOUs issued by the cash-strapped state after Friday.At least two major banks, Wells Fargo (WFC, Fortune 500) and Bank of America (BAC, Fortune 500), will stop accepting the IOUs, while JPMorgan Chase (JPM, Fortune 500) has not yet decided whether it will extend its original July 10 deadline. More than 60 credit unions, however, will continue to accept the paper.State Controller John Chiang started issuing the IOUs on July 2 to conserve cash, while lawmakers and Gov. Arnold Schwarzenegger tussle over closing a 26 billion budget gap. The state, the world’s eighth largest economy, this month is facing a nearly 3 billion cash shortfall, which will balloon to 16.7 billion in October.More than 91,200 IOUs worth 354.4 million were issued through Wednesday. Also called registered warrants, the IOUs pay an interest rate of 3.75% and are redeemable at the State Treasurer’s Office on Oct. 2 or earlier if divided state officials reach a budget deal. Recipients will include state contractors, social service agencies and those owed income tax refunds.Banks will work with customers on an individual basis to assist them, perhaps offering them home equity lines or short-term loans, said Beth Mills, spokeswoman for the California Bankers Association. But the institutions are also hoping to send a message to Sacramento.”What’s ultimately in the best interest of everyone will be for the state to act quickly and resolve the budget impasse,” she said.Bank of America’s decision stems from its experience in 1992, the last time the state issued IOUs amid a financial crisis. The bank, along with Wells Fargo, were among the first to stop accepting the IOUs. A budget was signed about a month later.”The longer the registered warrants were accepted, the longer it took the legislature to resolve the matter,” said Britney Sheehan, a Bank of America spokeswoman. “We do not want our acceptance of registered warrants to deter the state from reaching a budget agreement as soon as possible.”Customers at participating credit unions can continue to redeem the IOUs. The institutions are bracing for a crush of people looking to turn the warrants into cash.0:00
/2:26States face budget disasters”There are options,” said Daniel Penrod, senior industry analyst at the California Credit Union League. “If people look for those options, they’ll realize they are not stuck past the July 10 deadline.”IOUs to be regulatedSome people actually want to get their hands on the registered warrants, posting ads on online marketplaces such as Craigslist. Several postings offer to buy the paper for 85 cents on the dollar, while another listing is looking to sell the IOUs for 95 cents.This practice, however, has heightened fears that desperate IOU holders might be taken advantage of and that counterfeiters might make copies of the warrants.State Treasurer Bill Lockyer earlier this week said that warrant buyers must obtain a notarized bill of sale from the recipient when purchasing the IOUs. This will help ensure that the person redeeming the IOUs is the legitimate owner, said Bill Dresslar, Lockyer’s spokesman.The Securities and Exchange Commission Thursday said that the IOUs are securities and are subject to federal anti-fraud provisions. The agency also issued an investor alert warning both buyers and sellers to be careful when trading the warrants.”If you hold an IOU and wish to sell it prior to maturity you should consider whether you think you are getting a fair price,” the alert said. Investors who wish to buy IOUs should also understand who the seller is. If you are buying from a third party, ask if the person is registered to do this business. The SEC’s action has both positive and negative impacts on IOU recipients, experts said.It should cut down on scams because the warrants would have to be traded through registered brokers, said Joseph Fichera, who heads Saber Partners, a financial consulting firm for governments and corporations. Sellers would have to provide disclosure and make sure they are marketing the products properly.This, however, would also make it harder to offload the IOUs, which could frustrate recipients in need of cash.”The SEC is trying to provide some sort of framework for investor protection in the middle of uncharted territory,” Fichera said.
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Source:CNN

NEW YORK: It looks like Americans still aren’t in the mood to splurge at the mall.Several of the nation’s leading retail chains reported Thursday that their same-store sales declined again in June.The reports raise questions about whether the government’s effort to use stimulus spending to boost consumer spending is working.Sales tracker Thomson Reuters, which tracks monthly same-store sales for 30 chains such as Target (TGT, Fortune 500), Gap Inc. (GPS, Fortune 500) and J.C. Penney (JCP, Fortune 500), said overall June sales for the group fell 4.9%, compared to a gain of 1.9% last June.It marked the 10th-straight monthly decline for that index, which measures sales at stores open at least a year. That’s worrisome because consumer spending fuels two-thirds of all economic activity.By comparison, retailers last June cashed in plenty of one-time rebate checks given to eligible taxpayers — and much as 600 for individuals and 1,200 for couples — that were being doled out to consumers to stimulate the economy. This year, many Americans have already seen extra money in their pockets through 2009 stimulus measures such as lower tax withholdings, higher unemployment benefits and Social Security payouts. But consumers continue to restrict their store purchases to everyday necessities while forgoing other discretionary items.Still, some economists argued that the stimulus to consumers is having a positive impact on consumer spending.”Consider what consumer spending would be doing without this stimulus,” said Scott Hoyt, senior director of consumer economics with Moody’s Economy.com.”People are still losing jobs, their personal wealth is eroding and real wages are falling,” said Hoyt. “But consumer spending is trending flat so far this year. It’s not declining like it did in the second-half of last year. So I guess the stimulus is working.”And while last year’s rebates were sent out as one-time payments over mostly a concentrated period of time, Hoyt said the additional money consumers are getting this year is “stretched out over a nine to 10 month period.”"They aren’t getting a one-time check. So the impact will be spread out over time,” he said.What’s more, Hoyt said, temporary factors like cooler-than-normal weather in June also hurt sales of warm-weather products last month.Saving more, spending less? Other industry watchers have speculated that this recession has changed consumer behavior in a significant way.They said frivolous spending, one of the hallmarks of America’s consumer-driven economy, is on its way out. Budget shopping and saving are becoming the mantra for many households. Hoyt said many households are likely socking away any additional money toward savings or using it to pay down debt. While this is a negative to consumer spending in the short-run, he sees it as a good thing for the economy in the longer run.”If consumers are rebuilding their balance sheets and getting their financial house in order, they will be in a better position to make more discretionary purchases in the long run,” Hoyt said.Michael Niemira, chief retail economist with the International Council of Shopping Centers, agreed. He cited a 2008 consumer survey his group conducted that showed consumers used two-thirds of their rebate checks to pay down debt and only one-third of the money was spent in stores.”I suspect this year the amount spent in stores will be even smaller,” Niemira said.But the other thing that’s holding back spending, he said, is the fact that upper-income consumers are spending less.To his point, a May Gallup poll showed that consumers earning 90,000 or more a year spent 15% less during the first half of May — an average of 94 per day — than they did in April. That made May the lowest average daily spending rate of the year, according to the survey.Further, the Gallup survey said upper-income spending is off 48% from the first half of May 2008, also representing the sharpest year-to-year decline seen so far in 2009.Since upper-income Americans spend a disproportionate share of the nation’s disposable income, these shoppers also have to ramp up their purchases to boost overall consumer spending.”I am not looking at consumers to lead the recovery,” Niemira said. “The catalysts for the recovery will have to come from government spending, stock market recovery and other things.”Been to the mall lately? What has changed that you like or dislike? We want to hear about your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.
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Source:CNN

NEW YORK: A leaner General Motors is close to starting a new life under government ownership after a judge denied an 11th-hour request Thursday to block the automaker’s quick exit from bankruptcy.In approving the automaker’s restructuring plan late Sunday night, U.S. Bankruptcy Court Judge Robert Gerber gave parties that objected four days to file appeals. Those objectors include lawyers who had legal actions pending against GM, as well as some bondholders and smaller labor unions.U.S. District Judge Lewis Kaplan on Thursday denied a request by a committee of some of those objectors to delay Gerber’s order.Creditors at Chrysler Group were able to win a brief stay of a similar order during its bankruptcy process in June. But that stay was lifted without any court hearing arguments. So the chances of blocking the GM sale were seen as a long-shot.While the company could emerge from bankruptcy as soon as Thursday afternoon, a person familiar with plans said it is unlike to do so until Friday. GM Chief Executive Fritz Henderson is planning a press conference for Friday morning, although the company has yet to announce details.0:00
/09:21One-on-one with GM’s CEOGM, which despite decades of declining market share is still the nation’s largest automaker, filed for bankruptcy on June 1. It has been able to quickly move through the bankruptcy process by taking its more valuable brands, factories, dealerships and overseas operations and selling them in a “new GM” owned mostly by the U.S. government.The new company will include the Chevrolet, Cadillac, Buick and GM Brands, along with its overseas operations. About 4,100 of its 6,000 U.S. dealerships will remain with the new company, although there will be a slow wind down over the next 14 months of the dealerships that GM plans to shed as part of this process. The company will also have only a fraction of the 54 billion in unsecured debt it had heading into bankruptcy.Other holdings, contracts and liabilities that GM wanted to shed as part of the bankruptcy process will be held by the old company, now to be known as Motors Liquidation Co. (GMGMQ).The process of disposing of those assets and liabilities could take two or three years. These holdings include about 16 U.S. plants and facilities that employ about 20,000 workers. While some of the plants will stay open through 2012, many of those plants will close and many of the workers will leave the company before the end of the year.The federal government will initially hold 60.8% of the stock in the new company, with a union-controlled health care trust fund owning 17.5%, the Canadian and Ontario governments owning 11.7% and bondholders of the old GM eventually getting about 10%. Those who owned the shares in the old company will be left with nothing.

NEW YORK: Former Federal Reserve Chairman Alan Greenspan said the credit crunch should be over by now. But just ask anyone who has tried to get a loan recently, and they’ll tell you a different story.Greenspan’s measure of credit flow, a gauge known as the Libor-OIS spread, fell to 0.33 percentage points on Thursday — its lowest level since February 2008 and just eight-hundredths of a point above the 0.25 level that the Maestro called “normal.”So are things back to normal? There’s no easy answer.”It’s more complicated than that, obviously,” said Scott Anderson, senior economist at Wells Fargo. “Greenspan’s right in one respect: the liquidity crisis is over. But consumers’ and business’ access to credit remains extremely tight.”The “credit crunch” began in the fall of 2007, when the housing market began to unravel and the value of many mortgage-backed securities, held by most banks, started to tumble. With losses piling up at financial institutions, banks tightened their lending standards and offered more conservative loan products to customers.The crunch escalated into a “liquidity crisis” last September, after Lehman Brothers collapsed, worrying banks that their lending partners might not be around when it came time to repay their loans. Banks sat on their reserves, interbank lending came to a virtual standstill, and the premium on short-term loans went sky-high. Banks turned to issuing debt rather than making loans to stay afloat.The crisis has passed, experts say. But the crunch is here to stay for awhile.Why the liquidity crisis is over. Beginning in October, the Fed unveiled nearly a trillion dollars in liquidity programs, and the Treasury Department lent hundreds of billions of dollars in TARP funds to banks. Both efforts were aimed at getting banks to lend to one another again. Experts say the programs have largely worked: Banks have started repaying their TARP funds, interbank lending has increased and the Libor-OIS spread has fallen back to normal.The Libor-OIS spread is a good credit market gauge because it measures the difference between what banks are actually charging each other for three-month loans and what traders believe the baseline Fed rate will average over the course of the loan. Banks charge a lot more than the Fed wants them to charge when credit is tight, because of supply and demand: When no one is issuing loans, they can charge whatever they want. When everyone is lending, they have to be competitive.0:00
/2:30Stimulus stumble”The systemic risk in the banking system has been mitigated,” said Andrew Brenner, senior vice president of MF Global. “There’s been huge move away from banks having to issue debt to stay alive, and banks that were firing are hiring again.”The spread averaged 0.11 percentage points over the four years before August 2007. That increased to about 0.85 points just before Lehman’s meltdown. In mid-October, before TARP was doled out and the Fed’s liquidity programs began, the spread rose to a record 3.65 points. But it has fallen steadily since then.Why the credit crunch is still here. If banks are healthier, why haven’t we noticed?Mostly, because the economy still stinks. With unemployment levels closing in on 10%, household wealth deteriorating, foreclosures still rising and credit delinquencies at a record high, banks aren’t quite ready to fork over their dough to you without being absolutely sure you can pay it back.Accordingly, the Fed reported Wednesday that consumer borrowing fell by 3.22 billion in May after dropping a record 16.5 billion in April.Furthermore, just because liquidity is essentially back to normal, that doesn’t mean that financial institutions are healthy again. Losses are still mounting, markets are still volatile and banks are still hanging onto billions of dollars in toxic assets.”There’s a long way to go,” said Anderson. “Banks still have a lot of losses to make up.”Will it get better?”Absolutely. Everything goes in cycles,” said Brenner, who predicts the credit crunch will end in about a year. “These low rates will probably spur inflation at some point, and banks will make more money.”But some aren’t so sure the future will look like the past.”It won’t ever go back to the way it was before the crisis erupted in the fall of 2007,” said Anderson. “There’s a new normal as far as banks are concerned, in terms of tighter standards and the types of loan products offered.”
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WASHINGTON (Reuters) — Federal Reserve Vice Chairman Donald Kohn on Thursday launched a robust defense of the U.S. central bank’s independence and warned that efforts to put monetary policy under political sway would hurt the economy.Curbing the Fed’s independence could both result in higher long-term interest rates and hurt the United States’ credit rating, Kohn said.”Any substantial erosion of the Federal Reserve’s monetary independence likely would lead to higher long-term interest rates as investors begin to fear future inflation,” Kohn said in remarks prepared for delivery before a congressional committee.Kohn is due to testify later Thursday. A copy of his remarks was released before the hearing.Kohn’s testimony comes as Congress debates President Barack Obama’s plan for regulatory reform, which envisions the Fed taking on the role of systemic risk regulator, in a bid to fix a system that failed to prevent a financial crisis last year.The proposal to expand the Fed’s powers has increased calls for accountability at the central bank, and a bill put forward by Republican Congressman Ron Paul to expose it to a full audit by a government watchdog has won support from a majority in the House of Representatives.Kohn said such a move could be highly detrimental.”The bond rating agencies view operational independence of a country’s central bank as an important factor in determining sovereign credit ratings, suggesting that a threat to the Federal Reserve’s independence could lower the Treasury’s debt rating and thus raise its cost of borrowing,” he said.Kohn said allowing that the Government Accountability Office to audit Fed monetary policy would be a bad mistake.”The Federal Reserve strongly believes that removing the statutory limits on GAO audits of monetary policy matters would be contrary to the public interest by tending to undermine the independence and efficacy of monetary policy,” he said.

Source:CNN

NEW YORK (Fortune) — An Amgen trial drug — called denosumab — reached a new milestone on July 7 when the biotechnology company announced results from the latest clinical trial of the drug for bone cancer. The trial of more than 2,000 patients showed DMab — which works to slow bone destruction, a primary concern for people with advanced cancer and the cause of a myriad of complications, including fractures — delayed the time it took for damage to occur when compared to rival drug Zometa, which is made by Novartis. Amgen has already submitted DMab to the Food and Drug Administration as a treatment for osteoporosis.”We’re very, very excited about it,” Amgen CEO Kevin Sharer told Fortune. “This has been a drug we’ve worked on for 15 years. We did the fundamental biology and invested over 1 billion. I bet my job on it.”Talkback: What should Amgen focus on?Yesterday, the day after the announcement, Amgen’s stock surged 14% — the most in four years. Analysts had a field day in their notes, with some increasing Amgen’s share price expectations to more than 70 and others upping annual revenue estimates for DMab to as high as 3 billion.0:00
/4:36Amgen CEO on health care reformSteve Yoo, an analyst at health care investment bank Leerink Swann, estimated in a note that U.S. sales of DMab as a treatment for bone cancer could hit 558 million by 2012. And U.S. sales of the drug as an osteoporosis therapy could total more than 2 billion in the same period, for an overall DMab revenue of more than 3 billion by Yoo’s calculations.By comparison, Zometa brought in 1.4 billion in sales last year. Yoo noted that the cost of DMab will likely be higher than Zometa, but warned that pricing it too high could limit prescriptions of the drug as an osteoporosis treatment.DMab is a biologic — a medicine made from living organisms — and works by blocking the activity of the protein that regulates the cells responsible for breaking down bone, making it valuable as an osteoporosis therapy. When used as a bone cancer treatment, it targets metastases that are extremely prevalent with certain types of advanced cancer, reaching incident rates of nearly 75% in breast and prostate cancer patients, according to Amgen (AMGN, Fortune 500).The biotech expects an FDA decision on DMab as an osteoporosis therapy by Oct. 19. Yoo says there’s no timeline yet on when the drug will be submitted to the agency for approval as a bone cancer treatment. But whenever the decisions arrive, approval of DMab for both uses would mean a big boost for Amgen. “I think it’ll really be important for patients,” Sharer told Fortune. “So it’s very, very important to us.”

Source:CNN

NEW YORK (Reuters) — The yen and the U.S. dollar fell Thursday as a decline in U.S. initial jobless claims revived the appetite for risk.Sterling climbed after the Bank of England kept its quantitative easing target unchanged, relieving concerns that the inflationary policy would be continued.Currencies seen as higher risk, such as the euro, got a boost from a government report showing the number of U.S. workers filing new claims for jobless benefits fell sharply last week, though continued claims rose to a record.Investors had trimmed risk exposure Wednesday amid waning optimism about the global economy’s recovery prospects.”The report should prove relatively positive for risk appetite and support the euro and sterling against the dollar,” said Boris Schlossberg, director of FX research at GFT in New York.Midway through the New York session the dollar fell 0.1% to ¥92.71, having hit a five-month trough of ¥91.80 on EBS trading systems the previous day.The euro climbed 0.7% to ¥129.79 after falling to around ¥127.00 on Wednesday, its lowest since mid-May.Analysts said, however, that the current moves are corrective and do not represent any fundamental shift in market sentiment.”Don’t read too much into it,” said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey. “The downward adjustment in the yen crosses has created a relatively stable euro.”Wednesday’s sharp rise in the yen prompted Japan’s top government spokesman to say excessive foreign exchange moves were undesirable, while Japanese officials said they were keeping a close watch on currencies.The dollar index was down 0.7% at 80.073, while the euro was up 0.8% at 1.3990 after falling as low as 1.3830 on Wednesday.Sterling shinesSterling outperformed after the BoE left its asset buying program at 125 billion pounds, while most in the market had expected the central bank to expand the total by 25 billion pounds.Sterling jumped by 1.2% against the U.S. dollar to 1.6253, while the euro lost 0.4% against the UK currency to 86.10 pence.The news that the BoE was not expanding quantitative easing came as the central bank left key interest rates unchanged at 0.5%, as widely expected.”The Monetary Policy Committee has sent a clear signal that the endgame for QE has arrived,” RBS economist Ross Walker said, calling the decision to leave the QE target unchanged “a significant surprise.”Among other currencies seen as higher risk, the Australian dollar recovered 0.5% to 0.7818, though analysts said the currency is highly sensitive to concerns about Australia’s ties with top trading partner China.China confirmed Thursday the arrest of an Australian mining executive and three others on spying allegations in a case that has raised questions about China-Australia relations.Those concerns cast a further shadow against the Australian dollar on Wednesday, when it fell more than 1 percent against the dollar and 3.5% against the yen.U.S. traders said volatility in the Swiss franc around the same time as the U.S. data release was sparked by market talk that Swiss National Board member Thomas Jordan had said the central bank wants to prevent further franc appreciation.This would have been the standard comment on the Swiss franc if he had spoken. The Swiss National Bank declined to comment on market talk.The dollar was down 0.9% at 1.0808 Swiss francs

Source:CNN

NEW YORK (Reuters) — Sprint Nextel Corp. said Thursday that Ericsson would manage its network as part of a seven-year deal worth 4.5 billion to 5 billion under which 6,000 Sprint workers would move to Ericsson.Sprint (S, Fortune 500), whose shares rose 4.4%, said the deal would deliver “operational efficiencies” but did not give estimates for any savings.Under the deal, Sprint, the No. 3 U.S. mobile service, will keep full ownership and control of its network assets and continue to make network investment and strategy decisions itself.The service provider, which has been struggling to stem customer losses, said the agreement would not result in any work force reductions as the transferred employees would become part of an Ericsson (ERIC) subsidiary based in Overland Park, Kansas, where Sprint’s headquarters is located.It said the job transfers would occur sometime in the current quarter.Shares rose 19 cents to 4.48 on the New York Stock Exchange.

Source:CNN

(breakingviews.com) — Citigroup is making nice-nice with regulators.That much is evident from the troubled bank’s latest reshuffling of its executive bench. Though the changes look primarily designed to please Citi’s many financial watchdogs, shareholders can still take some succor from chief executive Vikram Pandit’s apparent acquiescence.Citi (C, Fortune 500) named Eugene McQuade to run its core retail banking business, Citibank NA. As the former president and chief operating officer of FleetBoston, McQuade understands retail and commercial banking.This is the very career experience that regulators, led by Federal Deposit Insurance Corp. chieftain Sheila Bair, had faulted Pandit for lacking in sufficient quantity. Thus, one criticism is neutralized.Second, the bank is replacing Ned Kelly as the group’s chief financial officer with a numbers guy – chief accounting officer John Gerspach. As one of the primary executives to interface with regulators, this appears sensible. Though Kelly seems to have the confidence of his peers within the bank, his career within the investment banking arm made him an odd choice as the bank’s public face for finance.Moreover, Kelly — who also studded his delivery with Wall Street jargon on shareholder calls during his tenure of less than four months — proved an unwelcome lightning rod with the bank’s overseers. Earlier this year, after Citi lost out to Wells Fargo (WFC, Fortune 500) in a bid for Wachovia, Kelly called FDIC the group’s “tertiary regulator” behind the Federal Reserve and Comptroller of the Currency.So with these changes, Citi appears to have removed one irritant to relations with its watchdogs and answered criticisms it lacked sufficient retail banking know-how at the top.That should secure more time for Pandit and his management ranks to implement its plan to jettison assets and make the group more manageable. In this respect, the interests of shareholders and regulators are thankfully aligned.

Source:CNN